Janus Henderson Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 9 speakers on the call.

Operator

Good morning. My name is Lauren, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Third Quarter 2023 Results Briefing. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

Operator

In the interest of time, questions will be limited to one initial and one follow-up question. In today's conference call, certain matters discussed may constitute forward looking statements. Actual results could differ materially from those projected in the forward looking statements due to a number of factors, including, but not limited to, those described in the forward looking statements and risk factors sections of the company's most recent Form 10 ks and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward looking statements made during the call. Thank you.

Operator

Now it is my pleasure to introduce Ali Dibadj, Chief Executive Officer of Janus Henderson. Mr. Dibadj, you may begin your conference.

Speaker 1

Welcome, everyone, and thank you for joining us today on Janus Henderson's Q3 2023 earnings call. I'm Ali Dibadj, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some thoughts on the quarter before handing it over to Roger to run through more details. After those prepared remarks, we'll take your questions. Turning to Slide 2.

Speaker 1

Global markets were volatile during the Q3 as headwinds including rising global bond yields due to a higher for longer interest rate environment, Uncerned economic outlook, geopolitical unrest and stubborn inflationary pressures are contributing to challenging market conditions. Even with the market downturn in the quarter, Janus Henderson delivered good quarterly results. Investment performance remains solid With the majority of assets ahead of benchmark on a 1, 3, 5 10 year basis. Assets under management decreased 4% for $308,300,000,000 however, remained up 7% since the beginning of the year. 3rd quarter flows were negative $2,600,000,000 A better result compared to the range we communicated on last quarter's earnings call.

Speaker 1

As I said on the previous earnings call, our institutional pipeline needed time to mature And our retail flows continue to be negative. We saw both of those factors play out in net flows in the 3rd quarter, but a little better than we expected as we gained share. The other item I spoke about was a few pockets of internal transition that will make us a stronger firm for the long term, but could negatively impact our flows in the short term. Transitions such as these can create uncertainty with flows in how clients react. I'm pleased that given the trust clients have placed in us, Along with the efforts and dedication of our investment and distribution teams, we did not experience significant outflows related to these internal transitions during the Q3.

Speaker 1

Looking at the broader flow picture, our 2023 year to date flows are still positive at $2,400,000,000 A market improvement from the almost $20,000,000,000 of outflows during the same period of 2022. We continue to be on pace to show great improvement for last year's Total annual net flows of negative $31,000,000,000 Our financial results remain solid. Better top line, Lower expenses and non operating benefits delivered adjusted diluted EPS of $0.64 better than both last quarter and Q3 of 2022. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business, both organically and inorganically, and return cash to shareholders, which I'll talk more about in a moment. Turning to Slide 3.

Speaker 1

I want to touch briefly on progress being made in the business. We continue to be in the execution phase of our strategic vision, which consists of 3 pillars protect and grow our core businesses, amplify our strengths not fully leveraged and diversify where clients give us the right to win. In Protect and Grow, we've talked previously about the importance of protecting and growing our U. S. Intermediary business and have been investing in and supporting this channel.

Speaker 1

As you know, we've recruited a new head of the North American client group, launched a national brand campaign, selectively upgraded talent, Align compensation with our growth strategy and increase the pace and quality of client engagements. These changes Allowing us to be on the front foot with our intermediary clients and their clients. The progress in U. S. Intermediary is showing up in results.

Speaker 1

In aggregate, 3rd quarter flows in North America intermediary were positive for the first time in over 3 years. Net flows into the advisor group Have been positive in each quarter of 2023, which up until now have been offset by negative flows in the retirement channel, reflecting changing demographics and a softening economy. Very importantly, we are capturing market share in this important market. Under Amplify, We've previously talked about our institutional and diversified alternatives businesses and our product development and expansion efforts. Our product expansion efforts include the launch of the successful global life sciences strategy in an OIC during the Q3.

Speaker 1

In product development, a successful example is our suite of active ETFs that has grown by over 50% annually since 2018 and has nearly $9,000,000,000 in AUM at the end of the 3rd quarter. With this growth, Janus Henderson is now the 5th largest provider of active fixed income ETFs in the U. S. With more to come from us. In the institutional business, which is over $8,000,000,000 of positive flows year to date, we've restructured coverage to be more aligned to different client types, Helping them to serve their needs better through greater specialization.

Speaker 1

We've completed the majority of appointments and we're seeing a number of consultants advise wins, which is vital to the future growth of the institutional business over time. Under our diversified pillar, we continue to look actively to buy, build or Partner to diversify where clients give us the right to win. As an example, last quarter we announced a joint venture, PivotCore, that looks to take advantage of the democratization of private alternatives into the retail channel. We remain on track with building out the PivotCorp business with a target of being fully operational by year end and in the market in early 2024. We're enhancing our culture with our new mission, values and purpose.

Speaker 1

This is critically important as we augment our culture of performance, collaboration and accountability built upon our stable and client focused processes at Janus Henderson. Fuel for growth, which allows for reinvestment in Janus Henderson's strategic initiatives on behalf of our clients, has been realized at a faster pace than expected and at a higher dollar amount. We expect run rate cost efficiencies of $50,000,000 by the end of 2023 Compared to the original $40,000,000 to $45,000,000 by the end of 2024. All of this cost savings has been or will be reinvested in the business. As part of Fuel for Growth, we announced earlier today our 10 to delist from the ASX.

Speaker 1

With 95% of shares and a significant portion of the trading volume On the New York Stock Exchange, this move will allow Janus Henderson to focus on a sole exchange, reduce costs and simplify the structure As we continue to invest in Australia and the APAC region as a key growth market for us. Our proven financial results and cash flow generation Along with a strong and stable balance sheet, has enabled the Board to authorize a share buyback program of up to $150,000,000 to be completed by April 2024. I want to stress that this new buyback does not change our desire and pursuit to diversify our business through M and A where clients want us to do so. At this stage, our liquidity profile allows us to do both. Wrapping up, I want to thank each and every one of my colleagues at Janus Henderson for their hard work and dedication As we continue to show real progress on our strategic path to deliver consistent organic growth, there's still significant opportunity for improvement.

Speaker 1

Our financial results are solid. We're generating good cash flow. We have a strong and stable balance sheet. I'll now turn the call over to Roger to run you through the financial results.

Speaker 2

Thank you, Ali, and thank you again to everyone for joining us on today's call. Turning to Slide 4 on Investment Performance. Investment performance versus benchmark remains solid with the majority of assets beating their respective benchmarks over all time periods. In Equities, the 1 5 year performance versus benchmark improved compared to a year ago, most notably on a 1 year basis, where 83% of AUM is now beating benchmark compared to only 42% a year ago. Short term fixed income performance versus benchmark Our improving fixed income performance and differentiated breadth of product across different vehicles and regions, an example being our active fixed income ETF strength that he just mentioned.

Speaker 2

That positions us really well for the anticipated movement into fixed income as interest rates stabilize And bonds provide diversification benefits to clients. In the multi asset capability, the balanced strategy, which is the vast majority of assets In this bucket, we switched to underperforming the benchmark on a 1 year basis, but only by 1 basis point. Balance remains ahead of its benchmark over 3 year and longer time periods And is in the top Morningstar quartile over the 5 10 year time periods. Investment performance compared to peers Continues to be competitively strong with 75%, 60%, 79% 87% of AUM in the top Looking further into performance, equities have 64% of AUM in the top quartile on a 1 year basis, a great result and a testament to the ability of our world class investment team to deliver differentiated insights and Investment Discipline in these extremely challenging market conditions. Slide 5 shows company flows.

Speaker 2

As Ellie mentioned, net outflows were $2,600,000,000 in the quarter, which is consistent with our messaging last quarter and reflects the continuation of net outflows in retail and less institutional gross sales as we continue to mature the pipeline following the funding of several large mandates in the first half of the year. Year to date net inflows of $2,400,000,000 demonstrate a significantly improving trend compared to 2022. Turning to Slide 6 for a look at flows by client type. Net outflows for the intermediary channel improved to $1,300,000,000 compared to $1,600,000,000 in the 2nd quarter. The quarterly outflows from the EMEA and LATAM regions As higher interest rates, inflation and recessionary fears are weighing on flows.

Speaker 2

Janus Henderson is not unique, and the EMEA industry in general has experienced Challenging flow environment with meaningful year to date net outflows across most regions. U. S. Intermediary flows were slightly positive, Supported by strong positive flows from several strategies, including the AAA CLO ETF, our Mortgage Backed Security ETF and U. S.

Speaker 2

Mid Cap Growth. As Ali discussed and we've spoken about previously, U. S. Intermediary is a key initiative under our Protect and Grow strategic pillar, And we're pleased that we have positive flows this quarter. Our year to date flow results have improved by over $5,000,000,000 compared to the same period a year ago and that we are capturing market share.

Speaker 2

Institutional net outflows were $400,000,000 in the 3rd quarter. In line with our comments from last quarter's call, following on to the large inflows that we had in the first half of the year, we were not anticipating large fundings in the Q3. Our distribution team is working to build a sustainable pipeline and it will take time. Finally, net outflows for the self directed channel, which includes direct Supermarket Investors were $900,000,000 Slide 7 is flows in the quarter by capability. Equity flows were negative $2,300,000,000 in the 3rd quarter compared to breakeven in the prior quarter.

Speaker 2

The environment for active equities remains challenging across all regions. Despite the outflows, we're encouraged that U. S. Equities captured market shares during the quarter. Net inflows for fixed income were $900,000,000 taking net positive flows to $5,500,000,000 year to date.

Speaker 2

We're encouraged by the steady improvement in the short term investment performance to go along with our solid longer term investment performance in fixed income. Several strategies contributed to positive fixed income flows, including our fixed income ETFs, which had positive flows of $1,400,000,000 in the quarter. Other strategies contributing to the positive flows for the quarter were the U. S. Buy and Maintain Credit, Multisector Credit and Australian Fixed Income Strategies.

Speaker 2

Total net outflows for the multi asset and alternative capabilities were $700,000,000 $500,000,000 respectively. Moving on to the financials. Slide 8 is our U. S. GAAP statement of income.

Speaker 2

And on Slide 9, we explain the adjusted financial results. Adjusted revenue increased 1% compared to the prior quarter as increased management Fees on higher average AUM were partially offset by lower performance fees. Net management fee margin for the 3rd quarter was 48.7 basis points Compared to the prior quarter of 48.5 basis points, the increase is primarily due to mix shift. Last quarter, we told you that we expected the fee rate to be relatively flat in the 3rd quarter after a decrease in the 2nd quarter due to the large low fee institutional fundings in the first half of the year. 3rd quarter performance fees were negative $16,000,000 driven by U.

Speaker 2

S. Mutual fund performance fees of negative $17,500,000 As we sit here today, based on current investment performance, Our estimate of aggregate performance fees for the full year remains unchanged towards the negative end of negative $35,000,000 to $45,000,000 This includes roughly negative $65,000,000 from U. S. Mutual fund performance fees. Clearly, the result will be dependent on future performance.

Speaker 2

Continuing on to expenses. Adjusted operating expenses in the 3rd quarter were $280,000,000 flat compared to the prior quarter. Adjusted LTI was down 5% compared to the prior quarter, largely due to mark to market on mutual fund awards. In the appendix, we've provided the usual table on the expected future amortization of existing grants for you to use in your models. The 3rd quarter adjusted comp to revenue ratio was 45.3 percent, in line with expectations.

Speaker 2

Adjusted non comp operating expenses declined 1% compared to the prior quarter, primarily due to lower G and A expenses. Adjusted operating income increased 3% over the prior quarter to £125,400,000 in the 3rd quarter. 3rd quarter adjusted operating margin improved to 31%. And finally, adjusted diluted EPS was $0.64 up from both the prior quarter and the same quarter a year ago. Updating on our expectations for full year 'twenty three operating expenses.

Speaker 2

As Ali mentioned, we now expect to deliver $50,000,000 in Fuel for Growth cost savings to strategically reinvest back into the business. We're pleased with this result, but we will As we're approaching the end of 'twenty three, We're refining our previous guidance. The expected adjusted compensation ratio remains unchanged in the mid-40s. We've lowered the range of our adjusted non compensation expense percentage growth compared to the prior year and now expect it to be mid single digits. We've also updated our expected statutory tax rate to approximately 24% from the previous range of 24% to 26%.

Speaker 2

Skipping over Slide 10 and moving to Slide 11 and a look at our liquidity profile. Our balance sheet remains very strong. Cash and cash equivalents increased to $1,100,000,000 as of the 30th September, an increase of approximately $150,000,000 resulting primarily from good operating cash flow generation. We've maintained a strong liquidity position, and we continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. Along these lines, as Alice Mentioned earlier, the Board has approved a new share repurchase authorization of up to $150,000,000 to be completed by April 2024.

Speaker 2

Our capital allocation philosophy has not changed. The buyback authorization reflects our improved financial outlook compared to where we started the year, Better cash flow generation and a strong and stable balance sheet. I want to reiterate Ali's comments that this buyback authorization Does not impair our ability to execute M and A should the opportunity arise. We continue to look actively to buy, Build or partner to diversify where clients give us the right to win. We'll also continue to return cash to shareholders through our quarterly dividend, And the Board has declared a €0.39 per share dividend to be paid on the 13th November to shareholders of record as of the 13th November.

Speaker 2

With that, I'd like to turn it back over to the operator to open it up for questions. Operator?

Operator

Thank you. Please also ensure that your phone is unmuted locally. Our first question comes from Craig Siegenthaler from Bank of America. Craig, please go ahead.

Speaker 3

Thanks. Good morning, Ali. Hi. My first question is on capital management. So a lot of fresh commentary on M and A and buybacks in the prepared remarks, Both would drive EPS higher.

Speaker 3

First, we want to get an update on the potential for an M and A announcement And over the near term and I think Ali you made it clear in the commentary that you can buy back stock and do M and A at the same time. And also just in terms of the focus, is private credit still the number one strategic focus?

Speaker 1

Hey, Craig. Thanks for the questions. First from a capital allocation perspective, our framework and our hierarchy hasn't changed. So we have kind of 3 buckets to think about. The first one is cash that we have to have on hand.

Speaker 1

So whether it be for regulatory needs or liquidity needs or Capital we set aside for contractual obligations or, kind of recurring payments, things like that. That's the basis of step 1. The next piece is we look to invest back in the business, both organically as we've been doing to grow the business and of course inorganically as well. Thanks, Heath Funding, thanks, technology, other things. And then if we have anything left, we return excess cash to shareholders, Which we are announcing that we're going to start doing today, thanks to the Board approval.

Speaker 1

The reason we're doing that, as Roger mentioned a little while ago, is because We've delivered better results than we had anticipated. And so now we do have the opportunity to return cash to shareholders and are able to do that And invest in the business both organically and we believe inorganically appropriately. So We certainly think we can do both now. To your point, that doesn't change our M and A stance whatsoever. Our M and A stance continues to be client led, adding capabilities that clients want us to add.

Speaker 1

You saw us do 2, for example, over the past little while. 1 is PivotCorp in the private space, and 1 is the emerging market debt business that we brought on board, which continues to grow quite nicely. So we want to be client led in what we are acquiring. There's plenty of stuff out there. Private credit, to your point, is certainly one of the areas that we're focused on.

Speaker 1

It is an area where clients want us to participate and we're certainly looking for opportunities, but there are plenty of other opportunities out there as well that allows us to have a broader scope on behalf of our clients.

Speaker 3

Thanks, Ali. Just as my follow-up, your active equity performance It's a lot stronger, 80% of AUM's beating benchmark and peers roughly over 1 year. Now like We all know there are some secular and cyclical headwinds here, but I wanted to see if you're seeing an improvement in client conversations Either on the sales side or the redemption side of the equation.

Speaker 1

Look, it's a great observation. Our teams are doing an Organarily good job at sticking to the process, being disciplined and delivering what we do best here at Janus Henderson, which is Active investment performance. You see that across the board. Obviously, that entails clients peaking their interest and being interested in talking with us. So certainly performance improving helps that.

Speaker 1

And as you mentioned, we've done a pretty good job at that. Now what I will say is that Performance in a vacuum isn't necessarily the only thing that clients want, right? They want really clear client service and Sales Support. And as you've seen in some of the comments before and some of our numbers, we continue to deliver that very well. And clients trust us.

Speaker 1

They trust to deliver both performance and great client service. And so the combination of that has seen a significant increase in client interactions,

Speaker 3

Thank you, Ali.

Operator

Thank you. Our next question comes from Dan Fannon from Jefferies. Dan, please go ahead.

Speaker 4

Thanks. I was hoping to follow-up a bit on the first question And just with regards to what are the minimum levels of cash that you want to hold on to that you need to for the reasons you mentioned as well as How you think about leverage in this environment, what you're willing to put on the balance sheet?

Speaker 2

Hi, Dan. It's Roger. Let me pick up on that. I think the as Ali said, we've got a profile Of capital, our cash and cash equivalents are up just over or about $100,000,000 from where they were in Q3 'twenty two. And to your point actually, some structural work we've done and efficiencies in the business has actually reduced Our rate capital requirement, as you know, is largely driven in the U.

Speaker 2

K. So there isn't a single number, But we look at that cash and capital balance and that is now significantly above where it was A year ago or a little bit before that when we stopped doing a buyback previously, and that gives us the fuel to do both Yes, a strong dividend, the buyback and to Ali's point, continue with looking in M and A opportunities.

Speaker 4

Great. And then just given the success you've had in reducing finding more efficiencies And operating the business, as I said, more efficiently. Can you talk about the longer term expense framework as we think about Maybe next year and even further given the balancing of continuing invest for growth, but some of the footprint and reduced fixed costs that maybe are coming out of the business Over time. What's the reasonable growth rate for the overall expenses?

Speaker 2

Yes. Again, let me kick off on that and then Ali perhaps you want to chip in as well. We're investing in our business. We've been very clear about the areas that we think we can grow in. We've been investing in those areas and Ali's laid those out.

Speaker 2

One of those is our U. S. Intermediary business, whereas Ali said, we've invested both in people As well as brand and other areas, it's great to see that coming through in some market share gains and positive flow in What's a difficult environment? That being said, we're constantly looking at how to balance that investment With efficiencies and deciding where we'll do less or where we can do better and where we can do less. And that's a constant act.

Speaker 2

But we said that we laid out this $40,000,000 to $45,000,000 We've gone a little bit further than that and quicker than that, which Great. And we'll continue to look at that in 2024 in order to continue to invest. So I'm not going to give expense guidance today for 2024. We'll do that on the full year call. But again, you should expect us to remain balanced in investing in the business and trying to find efficiencies to offset those investments.

Speaker 2

Ali, anything you'd add to that?

Speaker 1

Yes. Maybe just a little bit. Look, we're going to continue to be client led and ROI driven in We have in a relatively short period of time, really reoriented our Think about it as a portfolio of expenses. We've reoriented our portfolio expenses to be much more focused on meeting client needs and Focusing on ROI, again, aligned with our strategy. So we feel like we're on our front foot right now.

Speaker 1

You're seeing that in our market share gains relative To our peers, pretty much across the board, we believe we're certainly building a stronger firm in a very challenging environment, And we will continue to look for opportunities to take our expenses and reorient them in the most client led and ROI driven manner.

Speaker 4

Great. Thank you.

Operator

Thank you. Our next question comes from Nigel Pizzaway from Citigroup. Nigel, please go ahead.

Speaker 5

Good morning, Ali and Roger. Just a question on the cost guidance, if I can. You brought that down to mid single digit on the non comp costs, but it looks like even a 10% increase in the 4th Quarter on what you've done in Q3 will only bring you to that 3% increase. So are you flagging sort of a significant Increase in the Q4? And if so, where is that going to come from?

Speaker 2

Yes. Nigel, yes, we are expecting an increase in Q4, which is more seasonal than anything else around things like brand and some professional work that we're doing that will be a pickup in Q4. Again, I think when you're looking year on year, you should be looking at our spend for 2023 compared to 2024 as opposed to annualizing Q4. But yes, we do expect A pickup in Q4. Again, we'll continue to try and balance that.

Speaker 2

We'll continue to look for efficiencies. But we brought in that guidance from I think it was low single digits at the beginning of the year, now to sorry, low double digits at the beginning of the year to now Mid single digits, we'll continue to try and balance that, but we do expect to spend a little bit more in Q4. That's more timing than anything else.

Speaker 5

Okay. Thanks. Yes, the 3% was year on year, but nonetheless, thank you for that. And then also on the comp ratio, it's almost the opposite You're going to have to have pretty low comp ratio in the 4th quarter to meet that full year guidance. Is that the right way to think about that one as well?

Speaker 2

Again, there's a little bit of timing in there that the early part of the year is always a little bit higher. But yes, there's we've talked about mid-40s, what, 43 and a bit 45 and a bit this quarter. We don't expect to be too far off that, maybe a little bit higher in Q4 than Q3.

Speaker 5

Okay. Thank you for that. And then finally, maybe just on investment performance. I mean, I know it has sort of improved on a number of durations, etcetera. But Obviously, the 3 year performance, which is often viewed as key, has sort of deteriorated quite a bit.

Speaker 5

Do you see that as a hurdle at all? Or are people just So, we're willing to look at 1 year and 5 year and not sort of focus too much on that 3 year performance.

Speaker 1

So we obviously strive to deliver on all performance cycles. We all know it happened roughly 3 years ago From a COVID perspective, which drove quite a significant dislocation in the marketplace. Our investment teams remain disciplined in their processes. Our clients know that. They look at the process.

Speaker 1

And so generally speaking, I'd argue people look at all timeframes and make a judgment that way.

Speaker 6

Okay. Thank you.

Operator

Thank you. Our next question comes from Ken Worthington from JPMorgan. Ken, please go ahead.

Speaker 7

Hi, good morning and thanks for taking the question. When you talk about the institutional pipeline needing to mature, Can you update us on what a fully mature pipeline looks like to you versus what the pipeline looks like today? And what is the time line you think you need to reach that pipeline maturity?

Speaker 1

It's a great question. So Look, remember our institutional business so far has delivered $8,500,000,000 of positive flows for the year. Imagine that Ken being in a pipeline, pick a number 6 to 12 months ago, and that has to be replenished. So if you go forward, that is something that we would like to do, obviously. And the cheeky answer to your question is we'd like the pipeline to be bigger than it today.

Speaker 1

Now from a timeframe perspective, these are longer cycle sales as you know. You can think about these sales as far out as 2 years from now, depending on what needs are there from a client perspective. So these things take time. The good news is that they are ramping up significantly in terms of the activity levels. Clearly, our consultant wins have gone up quite significantly.

Speaker 1

Our discussions with institutional investors Has gone up quite significantly. And as you well know, one of our strategic initiatives is to invest in our institutional distribution pipeline, Including adding a better team, and we've done that for now, and who are quite significantly in the marketplace talking to So it will take time. I don't have a precise answer for you, but we're certainly on the right track and getting stronger in a tough environment.

Speaker 7

Okay. Thank you. And then on the ASX delisting, how and when will the delisting from the ASX be executed? How much of Janus' market cap is listed today on the ASX? And are there any steps that you're taking To kind of protect shareholders during this transition.

Speaker 1

So the ASX is about 5% of our shareholders right now. You might remember it was close to north of 40%, I think 44% at its peak of shareholders at a certain point. So clearly, that's come down quite significantly. Remember, our decision to do the delist is to be able to focus on 95% of our Shares, to focus on that sole exchange, New York Stock Exchange, to reduce significant costs as we fuel growth And to simplify our structure for regulatory reasons, M and A reasons and other reasons. And so that's clearly a focal point for us.

Speaker 1

If you think about that, that's call it 10 or 11 days of trading volume for us. There'll be roughly and Roger can jump in with more details. There'll be roughly 120 calendar days To work through that 5%, and people can convert directly from an ASX listing To a New York Stock Exchange listing, which will probably reduce that 5% as well. It's important to note, Ken as well that this has no bearing on our clients or investments in Australia itself. It's a very important market for us.

Speaker 1

I was there 10 days ago. I want to go back very soon because we're growing in that market. We've been growing for Roger, you may have some better detail on dates.

Speaker 2

Yes. Just So Ken, you can see that we published how the time line will work, but essentially, we announced the process today. We become delisted On the 6th December, there was then a 2 facilities, a voluntary facility and a compulsory facility That will probably take us through to sort of mid to the back end of the Q1, which is what Ali is saying is really this is 120 day Trading window that this will happen in. In terms of investor Protection, as Ali said, it's a relatively small amount over a long period of time, but you obviously don't like any selling pressure. The other thing I'd say is that This is a transfer or can be a transfer of shares.

Speaker 2

So it's not an automatic cancellation. Some people will hopefully move over to the NYSE. So hopefully some of that 5% will move over. And then whilst the buyback is definitely not directly linked to the delist, we will be in the market During the delist period with the buyback as well. So we'll be buying shares during that period from a buyback perspective.

Speaker 2

So That's the process. Happy to take anyone through it in more details how it works. But it's more process than anything else.

Speaker 7

Great. Thank you very much.

Operator

Thank you. Our next question comes from John Dunn on Evercore. John, please go ahead.

Speaker 6

Hi, thank you. It was great to see the improvement in the U. S. Intermediary channel. Maybe could you just talk a little more about the kind of puts in the fund level puts and takes there and Anything that we should be kind of looking at that might move from being a drag to being more of a tailwind?

Speaker 1

Sure. We are very pleased with the progress in the U. S. Intermediary channel. We put a lot of Focus on it from a strategic perspective, and we've done a few things there.

Speaker 1

For example, we've brought in a new leader of that organization and new people, As well as given blue sky from people internally to supplement the folks we're bringing in from the external world. So clearly a change in people was part of it. We put in new KPIs, new compensation metrics, which was very clear on what we Wanted to get out strategically from that business and that has clearly delivered. And of course, very much to your point, John, we have a set of products And great performance to the earlier question to deliver for our clients. If you think about our products that have done well In that channel, but frankly, more broadly, it's a similar set of products.

Speaker 1

We've done quite well in the fixed income business. Part of that is from the innovation that we've brought to bear in that channel with our securitized suite of ETFs. And we have more to come on that over time that can deliver for the needs of our clients in the U. S. Intermediary channel.

Speaker 1

We've also been quite successful, actually on the equity side as well. So things like mid cap growth have been quite attractive as well in that channel. So it's actually pretty broad based. Actually, if you take a step back and you think about The top 10, inflowing, strategies from a firm wide perspective, About 5 of them are in fixed income and about 5 of them are from equities, which is a really broad balanced Focus. But the changes we made in that channel, the excellent efforts of that team there in the U.

Speaker 1

S. Has been Fantastic and quite a motivation for the rest of the firm as well.

Speaker 6

Got you. And then you mentioned investing in fixed state I mean, institutional distribution, but With the potential coming wave of demand for fixed income, can you talk about the process of how you are getting in front of clients and Trying to get prepared for that in both the intermediary channel and then the institutional channel.

Speaker 1

Yes, absolutely. We have a broad suite of fixed income products and strategies to bring to bear to our clients and institutional channel To build on your intermediary comment earlier, we certainly have the securitized skill set that can be brought To our clients in different forms, I mentioned ETF form in particular in the intermediary channel, but certainly can be brought in different forms To the institutional pairings as well, separate accounts and otherwise. Obviously, we have some less innovative but storied franchises like the Australian income franchise, the Multisector Credit franchise, the Buy Maintain franchises, whether it be in Europe, UK or the U. S, That bring a great performance to our client base in the fixed income world. Now that's the kind of product by product sale, so to speak.

Speaker 1

But we also have obviously a solutions business that we can bring to our clients an outcome oriented solution Based on some combination of some of those fixed income products, but also things that are more bespoke in nature. You couple our product based focus As well as our solutions or outcome based focus and the intellectual capital that we have among our investors and researchers here To be able to share knowledge to our institutional investors, we're finding quite a lot of interest across the board and a lot of activity exactly as you say As the market is looking like there's some interest in that broad fixed income asset class. Thanks very much.

Operator

Thank you. Our final question comes from Marcus Bernard from Bell Potter. Marcus, please go ahead.

Speaker 8

Yes. Good morning, gents. Just interested on the buyback sort of partly following on from Ken's question. I take your points about the Strength of the balance sheet leading to the resumption of the buyback, but it seems a bit coincidental that it comes at the same time that You're doing the CDID listing. So I guess question 1 is, is it are the 2 linked?

Speaker 8

Or is it just a complete coincidence? And I guess the second question is really, if a discount does open up between the price of the CDIs and the NYSE stock, Are you going to use the buyback to help manage that discount? Thanks.

Speaker 1

Thanks for the question. So The buyback is not exclusively linked to the delist at all. We obviously think about these things Holistically, of course. And the holistic view is that our current liquidity profile, as we mentioned earlier, That allows us to both implement a buyback and continue to invest in the business organically and through M and A, Whether we buy or partner with others. So that's the view that we have across the board.

Speaker 1

Roger, I don't know if you have anything to add.

Speaker 2

No. As I said, I think the buyback and the delisted are not connected. They're at us looking at our capital. But Yes. As you say, it will absorb some liquidity.

Speaker 2

The shares are fungible, so there isn't a discount. They equalize between the 2. So that just doesn't happen that way given that how the CDIs work.

Speaker 8

I was thinking more on a sort of intraday level when New York shut the Australian market open.

Speaker 2

Yes. The buyback will be done on the New York Stock Exchange.

Speaker 8

It will be done on the New York Stock. Okay. Thank you.

Speaker 6

Thank you. Thank you.

Operator

That is now the end of the Q and A session. So I'll now hand back over to Ali Dibadj for closing remarks.

Speaker 1

Great, Lauren. Thank you very much, everybody for listening. This is another quarter that hopefully demonstrates our commitment to deliver for our clients, their clients, Our employees who've worked so hard, our shareholders, Janus Henderson continues to get Stronger and stronger in a very challenging environment. So thank you all for your interest in our firm and have a good day.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.

Powered by Quartr

Key Takeaways

  • Janus Henderson delivered solid Q3 results with AUM of $308.3 B (–4% QoQ, +7% YTD), net flows of –$2.6 B (vs –$20 B a year ago) and YTD net inflows of $2.4 B, and reported adjusted diluted EPS of $0.64.
  • Investment performance remained strong, with the majority of assets outperforming benchmarks across 1-, 3-, 5- and 10-year periods, including 83% of equities AUM beating 1-year benchmarks versus 42% a year ago.
  • The firm advanced its three strategic pillars—US intermediary flows turned positive for the first time in over three years, active fixed-income ETFs grew to $9 B (fifth largest US provider), and the PivotCorp JV in private alternatives targets an early 2024 launch.
  • Operational efficiencies exceeded targets with $50 M of “Fuel for Growth” cost savings achieved ahead of plan, all savings to be reinvested, while maintaining a mid-40s adjusted compensation ratio and mid-single-digit non-comp expense growth outlook.
  • Janus Henderson approved a $150 M share buyback through April 2024, reinforced by a strong balance sheet, continued client-led M&A pursuit, and an ASX delisting to simplify structure and reduce costs.
AI Generated. May Contain Errors.
Earnings Conference Call
Janus Henderson Group Q3 2023
00:00 / 00:00